Slowing Rates Of Return At Scotts Miracle-Gro (NYSE:SMG) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Scotts Miracle-Gro (NYSE:SMG) and its ROCE trend, we weren't exactly thrilled.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Scotts Miracle-Gro is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.19 = US$437m ÷ (US$3.1b - US$799m) (Based on the trailing twelve months to June 2025).

Therefore, Scotts Miracle-Gro has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 9.2% it's much better.

Check out our latest analysis for Scotts Miracle-Gro

Above you can see how the current ROCE for Scotts Miracle-Gro compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Scotts Miracle-Gro .

The Trend Of ROCE

Things have been pretty stable at Scotts Miracle-Gro, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Scotts Miracle-Gro doesn't end up being a multi-bagger in a few years time. This probably explains why Scotts Miracle-Gro is paying out 48% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

What We Can Learn From Scotts Miracle-Gro's ROCE

We can conclude that in regards to Scotts Miracle-Gro's returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 52% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Scotts Miracle-Gro (including 1 which is a bit unpleasant) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.